DOL's New Rule On Classification of Employees Vs. Contractors Will Benefit Workers

 Last year, the Department of Labor announced a new proposed rule about how workers are classified as employees or independent contractors. The comments period has ended, so we can expect the new rule to be implemented any time. 

DOL noted, "As explained below, as used in this proposal, the term “independent contractor” refers to workers who, as a matter of economic reality, are not economically dependent on their employer for work and are in business for themselves." And that is exactly how it should be. Instead, employers are misclassifying employees as contractors to avoid the application of employment laws and to avoid paying employment taxes.

The new rule would actually revert to an older rule that has existed in interpreting the Fair Labor Standards Act. "The ultimate inquiry is whether, as a matter of economic reality, the worker is either economically dependent on the employer for work (and is thus an employee) or is in business for themself (and is thus an independent contractor). To answer this ultimate inquiry of economic dependence, the courts and the Department have historically conducted a totality-of-the-circumstances analysis, considering multiple factors to determine whether a worker is an employee or an independent contractor under the FLSA."

This new rule will benefit workers in several ways:

Greater protection under labor laws: Workers who are classified as employees are entitled to greater protection under labor laws. For example, they are protected by the National Labor Relations Act, which gives employees the right to form and join a union, the Fair Labor Standards Act, which sets the minimum wage and overtime standards, state and federal discrimination laws, and whistleblower laws.

Better pay and benefits: Workers who are classified as employees are typically eligible for a wider range of benefits and may be entitled to a higher minimum wage. For example, employees are typically entitled to overtime pay, paid time off, and health insurance, while independent contractors are not.

Improved working conditions: Workers who are classified as employees are entitled to a safe and healthy workplace. This includes protection from workplace hazards and discrimination. Employers are also required to provide reasonable accommodations for employees with disabilities. Employees can also unionize to negotiate for better working conditions. Contractors cannot.

No double taxation: Independent contractors have to pay double the amount of social security and medicare taxes. Employers pay half of these employment taxes for employees. 

Overall, the Department of Labor's new rule on worker classification benefits workers by providing increased job security, better pay and benefits, improved working conditions, greater protection under labor laws, and clarity for both workers and employers. By ensuring that workers are classified correctly, the rule helps to ensure that workers receive the benefits and protections they deserve.

If you think you are misclassified as a contractor, contact an employee-side employment lawyer in your state. You also can report your employer to the Department of Labor and the IRS. They may additionally be liable under state wage theft laws. 

States With Pro-Employee Laws: Crackdown On Misclassification

Or, States That Don't Suck For Employees, Part III

With wage theft rampant and employers trying to figure out ways to not pay employment taxes (and avoid application of employment laws), many employers try to say, "Boom! You're an independent contractor now." They shove an independent contractor agreement in front of an employee and stop paying employment taxes. The employee is told to take it or hit the road.

While the handy-dandy SS-8 form that IRS has is a good tool for employees to force employers to correctly classify them, some states have taken larger steps to protect employees against greedy employers who break the law. Here are some states that have stepped up to stop misclassification:

• California's law imposes penalties of $5000 to $25,000 on employers who deliberately misclassify workers as contractors.
• Pennsylvania, Delaware, Colorado, Minnesota, New York, and Maine have laws saying workers are presumed to be employees and setting standards employers have to overcome to prove independent contractor status.
• Connecticut has a commission that is trying to crack down on misclassification.
• Delaware imposes fines and has a form that employers must give to employees on independent contractor status in the construction industry.
• Illinois imposes penalties and interest and has an online complaint form. They have a law creating a presumption of employment in the construction industry. 
• Massachusetts imposes both civil and criminal penalties on employers who misclassify.
• Montana requires independent contractors to hold an exemption certificate. Employers can be fined up to $1000 per violation for misclassifying.
• New Jersey law provides a strict test for determining independent contractor status.
• North Dakota has a process for employees to get the state to determine whether they are really employees.
• Wisconsin imposes penalties, fines up to $25,000 and can issue stop-work orders to employers who misclassify.

Misclassification is a serious problem for employees, but it also hits the states and taxpayers in the wallet in the form of unpaid taxes, unemployment compensation contributions, and worker's compensation premiums. I don't understand why every state isn't cracking down on misclassification, so maybe someone can explain it to me. Any legislators out there want to tell me why they're pro-misclassification?

"Jail 'Em" Says Pennsylvania Senator About Employers Who Misclassify

I've written here recently about the one-sided Criminalization of Employment Law. It seems that employees are getting tossed in jail while scofflaw employers sail off in their yachts laughing at the 99%. Well, at least one state Senator is doing something to balance things out.

Senator Mike Stack has proposed a bill in Pennsylvania to toss employers who misclassify employees in jail. Employers who declare employees to be independent contractors are illegally avoiding paying worker's compensation premiums, overtime and employment taxes, and at least Senator Stack is doing something about it.

Pennsylvania already has a law, as do many other states, providing civil penalties to employers who misclassify, but it isn't working. Employers are wiping their collective you-know-whats with this law and the Fair Labor Standards Act. Some states have cut deals with the Department of Labor to help enforce these laws. However, Pennsylvania reports that only 1/3 of pending cases have been resolved.

This new proposed law will allow prosecutors to step in and press criminal charges against recalcitrant employers. Stack said this about the need for the law: “Pennsylvania’s record of enforcement is a disservice not only to working families, but also to every taxpayer in the state. Federal officials understand that misclassification of workers means payroll taxes are not withheld, resulting in reduced tax collections. Everyone pays while a few benefit.”

While some state and local governments have passed wage theft laws cracking down on nonpayment of wages, wage theft remains rampant. Some municipalities have tried to deny licenses to thieving employers. Some states are finally passing laws that allow prosecution of wage thieves, but they're a small minority. There have been some prosecutions, but employers landing in jail are few compared with employees being prosecuted for trade secrets, eating cookies, blowing the whistle, and being disloyal.

This proposed bill in Pennsylvania may help balance the equities. After all, it hurts legitimate businesses, taxpayers and voters to have employers running around evading taxes, injuring employees without having insurance, and not paying wages. Will legislators in other states (yeah, I won't hold my breath in Florida) follow suit? Will we finally start demanding these corporation-persons be held accountable for their misdeeds?

Stay tuned.

Is Sexual Harassment Against Contract Employees Legal?

I received this question on my post I Reported Harassment and Now HR Wants to Meet With Me. What Do I Do?

Thank you for this article, it is very informative. I was wondering what the difference is when I'm a contract employee for a company. I work minimal hours weekly at a private company. I experienced verbal sexual harassment by a coworker. I reported it to the director and was fired via email a few days later. Then a few hours later I was re-hired. They realized I could sue them apparently. They are now limiting my freedom to move around the company without someone with me. They are not firing the offender. I don't know if I have any claims against them as a contract worker (1099 misc.) but am infuriated by how unprofessionally I was treated. I asked for a copy of their sexual harassment policy and was told I am not entitled to it since just an outside vendor. I currently am back working my shifts, although they clearly do not want me there and only un-fired me to prevent a lawsuit.

In general, independent contractors are not covered by anti-discrimination laws. However, most people classified as contractors are, IMO, misclassified and are really employees. I've written about this in detail in my article 11 Things To Know Before You Sign An Independent Contractor Agreement. In general, if your employer controls the time, place and manner of your work, you're an employee. If they can discipline, tell you how to do your work, have to approve vacation time, and you can't hire an assistant if you want, you're an employee.

There's a handy-dandy form the IRS has called the SS-8 that you can fill out and the IRS will do the work for you. If you think you're really an employee, fill it out, send it in and the IRS will figure out if you're an employee or not. If you are an employee, the employer will owe back taxes and you'll be covered by employment laws.

You can also talk to an employment lawyer in your state. If you file with EEOC, you need to be prepared for a fight on the issue of whether you're an employee or not, so either do the SS-8 form or make sure you have your legal arguments and proof ready for EEOC.

If you're a contract employee and not an independent contractor, then you're covered. However, it's your actual employer, not the company you're providing services for, who is primarily liable. If you haven't reported it to your actual employer, then you should. If the company you're providing services for controls your work and you enough, they may be a joint employer that would also be liable for the sexual harassment.

While the company doesn't have to fire the offender, if he/she does it again they could be liable since they are now on notice of his inclination to sexually harass.

This certainly sounds like a retaliation situation, so if you are misclassified then you should definitely file with EEOC and/or look at your state's whistleblower laws.

11 Things to Know Before You Sign an Independent Contractor Agreement

Many employers try to save money on taxes and escape liability under employment laws by getting employees to sign Independent Contractor Agreements. There are some advantages to being an independent contractor, but most people labeled as contractors are really employees. Here are the top 11 things you need to know before (or even after) you sign an Independent Contractor Agreement:

1. Intellectual property. If you are creating art, written work, computer programs or other creative works, then it may be an advantage to you to be an independent contractor. Generally, you own the copyright to works created as a contractor. However, be very careful when . . . read the rest on AOL Jobs.


Thanks again to Gina Misiroglu of Red Room for putting me in touch with the AOL people!